QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
.

Commission File Number: 000-50910

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware

80-0103159

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

311 Veterans Highway, Suite B

Levittown, Pennsylvania

19056

(Address of principal executive offices)

(Zip Code)

(215) 826-2800

(Registrants telephone number, including area code)

Not
Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ¨ No x

The number of the registrants outstanding common units at November 9, 2011 was 19,366,971.

Cost of goods sold (exclusive of depreciation shown separately below):

Perpetual care

1,373

1,370

4,097

3,727

Merchandise

5,787

5,098

15,272

12,466

Cemetery expense

15,312

13,506

42,860

34,839

Selling expense

12,192

10,298

33,923

27,381

General and administrative expense

7,111

6,327

20,569

18,086

Corporate overhead (including $195 and $190 in unit-based compensation for the three months ended September 30, 2011 and
2010, and $576 and $543 for the nine months ended September 30, 2011 and 2010, respectively)

5,628

5,360

17,572

16,054

Depreciation and amortization

1,886

2,466

6,374

6,205

Funeral home expense

Merchandise

982

967

3,197

2,833

Services

3,107

2,549

8,456

6,884

Other

1,779

1,509

5,222

4,381

Acquisition related costs

1,189

1,963

3,147

4,619

Total cost and expenses

56,346

51,413

160,689

137,475

Operating profit

3,979

717

8,974

4,062

Expenses related to refinancing





453



Gain on acquisitions



59



7,152

Early extinguishment of debt





4,010



Increase in fair value of interest rate swaps



1,398



4,637

Interest expense

4,824

5,902

14,266

15,999

Loss before income taxes

(845

)

(3,728

)

(9,755

)

(148

)

Income tax expense (benefit)

State

69

(20

)

(829

)

34

Federal

(691

)

(1,807

)

(2,304

)

(2,716

)

Total income tax expense (benefit)

(622

)

(1,827

)

(3,133

)

(2,682

)

Net income (loss)

$

(223

)

$

(1,901

)

$

(6,622

)

$

2,534

General partners interest in net income (loss) for the period

$

(4

)

$

(38

)

$

(132

)

$

51

Limited partners interest in net income (loss) for the period

$

(219

)

$

(1,863

)

$

(6,490

)

$

2,483

Net income (loss) per limited partner unit (basic and diluted)

$

(.01

)

$

(.13

)

$

(.35

)

$

.18

Weighted average number of limited partners units outstanding (basic and diluted)

19,353

13,995

18,807

13,649

Distributions declared per unit

$

.585

$

.565

$

1.755

$

1.675

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

StoneMor Partners L.P. (StoneMor, the Company or the Partnership) is a provider of funeral and cemetery products and services in the death care industry in the United
States. Through its subsidiaries, StoneMor offers a complete range of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a pre-need basis. As of September 30, 2011, the
Partnership operated 269 cemeteries, 248 of which are owned, in 25 states and Puerto Rico and owned and operated 66 funeral homes in 17 states and Puerto Rico.

Basis of Presentation

The unaudited condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The unaudited condensed consolidated financial
statements also include the effects of retroactive adjustments resulting from the Companys 2010 acquisitions (see Note 13). All interim financial data is unaudited. However, in the opinion of management, the interim financial data as of
September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The
results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year. The December 31, 2010 condensed consolidated balance sheet data was derived from audited financial statements
in the Companys 2010 Annual Report on Form 10-K (2010 Form 10-K) and has been adjusted to include the effects of retrospective adjustments resulting from the Companys 2010 acquisitions, but does not include all disclosures
required by GAAP, which are presented in the Companys 2010 Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of each of the Companys subsidiaries. These
statements also include the accounts of the merchandise and perpetual care trusts in which the Company has a variable interest and is the primary beneficiary. The Company operates 21 cemeteries under long-term operating or management contracts. The
operations of 15 of these managed cemeteries have been consolidated in accordance with the provisions of Accounting Standards Codification (ASC) 810.

The 3 cemeteries that the Company began operating under a long-term operating agreement in the third quarter of 2010 and 3 other cemeteries the Company operates under long-term operating agreements do not
qualify as acquisitions for accounting purposes. As a result, the Company did not consolidate all of the existing assets and liabilities related to these cemeteries. The Company has consolidated the existing assets and liabilities of each of these
cemeteries merchandise and perpetual care trusts as variable interest entities since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under these long-term operating agreements, which are
subject to certain termination provisions, the Company is the exclusive operator of these cemeteries. The Company earns revenues related to sales of merchandise, services, and interment rights and incurs expenses related to such sales and the
maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Company has also
recognized the existing merchandise liabilities that it assumed as part of these agreements. See Note 13 for further details on the 3 cemeteries the Company began operating under a long-term operating agreement in the third quarter of 2010.

Total revenues derived from the 21 cemeteries operated under long-term operating or management contracts totaled
approximately $10.0 million and $27.9 million for the three and nine months ended September 30, 2011, as compared to $8.7 million and $24.3 million from these cemetery properties during the same periods last year.

New Accounting Pronouncements

In the third quarter of 2011, the Financial Accounting Standards Board issued Update No. 2011-08, Intangibles  Goodwill and Other (Topic 350) (ASU 2011-08). Prior to ASU 2011-08,
the first step in the goodwill impairment test was to compare the fair value of a reporting unit to its carrying amount, including goodwill. ASU 2011-08 allows a Company to first assess qualitative factors to determine whether it is more likely than
not that the fair value of a reporting unit is less than its carrying value. If, after this assessment, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, the goodwill test
can be concluded and it is not necessary to calculate the fair value of the reporting unit. However, if the qualitative assessment does not lead to this conclusion, the full two step goodwill test, which has not been changed by ASU 2011-08, must be
performed. The Company has chosen to early adopt the provisions of ASU 2011-08. This adoption is not expected to impact the Companys financial position, results of operations, or cash flows.

Preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. As a result, actual results could differ from those
estimates. The most significant estimates in the unaudited condensed consolidated financial statements are the valuation of assets in the merchandise trust and perpetual care trust, allowance for cancellations, unit-based compensation, merchandise
liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs and income taxes. Deferred sales revenue, deferred margin and deferred merchandise trust investment earnings are included in
deferred cemetery revenues, net, on the unaudited condensed consolidated balance sheets.

Depreciation expense was $1.4 million and $4.3 million for the three and nine months ended
September 30, 2011, respectively, as compared to $1.7 million and $3.9 million during the same periods last year.

5.

MERCHANDISE TRUSTS

At September 30, 2011, the Companys merchandise trusts consisted of the following types of assets:

Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies;



Fixed maturity debt securities issued by U.S. states and local government agencies; and



Assets acquired related to the June 22, 2011 acquisition of three cemeteries and four funeral homes from SCI Missouri (see Note 13). According to
the terms of the agreement, SCI Missouri was required to liquidate the holdings of the related trusts upon closing and forward the proceeds to us as soon as practicable. As of September 30, 2011, the Company had not received these amounts.
Accordingly, these assets are shown in a single line item in the disclosures below as Assets acquired via acquisition and the cost basis and fair value of such assets are based upon preliminary estimates that the Company is required to
make in accordance with Accounting Topic 805.

All of these investments are classified as Available for Sale
as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and
Disclosures topic of the ASC. At September 30, 2011, approximately 94.3% of the total managed investments were Level 1 investments while approximately 5.7% were Level 2 assets. There were no Level 3 assets.

The merchandise trusts are variable interest entities (VIE) for which the Company is the
primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise to which they relate. If the value of these assets falls below the cost of purchasing such merchandise, the Company may be required to
fund this shortfall.

The Company has included $6.5 million and $6.4 million of investments held in trust by the West Virginia
Funeral Directors Association at September 30, 2011 and December 31, 2010, respectively, in its merchandise trust assets. As required by law, the Company deposits a portion of certain funeral merchandise sales in West Virginia into a trust
that is held by the West Virginia Funeral Directors Association. These trusts are recorded at their account value, which approximates fair value.

The cost and market value associated with the assets held in merchandise trusts at September 30, 2011 and December 31, 2010 were as follows:

A reconciliation of the Companys merchandise trust activities for the nine months
ended September 30, 2011 is presented below:

FairValue @12/31/2010

Contributions

Distributions

Interest/Dividends

CapitalGainDistributions

RealizedGain/Loss

Taxes

Fees

UnrealizedChange inFair Value

FairValue @9/30/2011

(in thousands)

$ 318,318

36,451

(29,535

)

9,257

7,166

1,669

(1,571

)

(1,843

)

(33,509

)

$

306,403

The Company made net deposits into the trusts of approximately $6.9 million during the nine months ended
September 30, 2011. During the nine months ended September 30, 2011, purchases and sales of securities available for sale included in trust investments were approximately $263.9 million and $254.8 million, respectively. Contributions
included $4.1 million of assets that were acquired through acquisitions during the nine months ended September 30, 2011.

Other-than-temporary Impairments of Trust Assets

During the nine months ended September 30, 2011, the Company determined that there was a single security with an aggregate cost basis of approximately $0.2 million and an aggregate fair value of
approximately $0.1 million, resulting in an impairment of $0.1 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change
against deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed. During the three months ended September 30, 2011,
the Company determined that there were no other than temporary impairments to the investment portfolio for merchandise trusts.

During the three and nine months ended September 30, 2010, the Company determined that there were 17 securities, with an aggregate
cost basis of approximately $40.6 million and $40.9 million, respectively, an aggregate fair value of approximately $27.5 million and $27.6 million, respectively, and a resulting impairment of approximately $13.1 million and $13.3 million,
respectively, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change against deferred revenue. This reduction in deferred revenue
will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed.

6.

PERPETUAL CARE TRUSTS

At September 30, 2011, the Companys perpetual care trusts consisted of the following types of assets:

Equity investments that are currently paying dividends or distributions. These investments include REITs, Master Limited Partnerships, and global
equity securities;



Fixed maturity debt securities issued by various corporate entities;



Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies;



Fixed maturity debt securities issued by U.S. states and local agencies; and



Assets acquired related to the August 17, 2011 acquisition of five cemeteries and four funeral homes from SCI Puerto Rico (see Note 13). According
to the terms of the agreement, SCI Puerto Rico was required to liquidate the holdings of the related trusts upon closing and forward the proceeds to us as soon as practicable. As of September 30, 2011, the Company had not received these
amounts. Accordingly, these assets are shown in a single line item in the disclosures below as Assets acquired via acquisition and the cost basis and fair value of such assets are based upon preliminary estimates that the Company is
required to make in accordance with Accounting Topic 805.

All of these investments are classified as
Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair
Value Measurements and Disclosures topic of the ASC. At September 30, 2011, approximately 90.8% of the total managed investments were Level 1 investments while approximately 9.2% were Level 2 assets. There were no Level 3 assets.

A reconciliation of the Companys perpetual care trust activities for the nine months
ended September 30, 2011 is presented below:

FairValue
@12/31/2010

Contributions

Distributions

Interest/Dividends

Capital GainDistributions

RealizedGain/Loss

Taxes

Fees

UnrealizedChange inFair Value

FairValue @9/30/2011

(in thousands)

$

249,690

7,452

(8,971

)

11,690

26

2,262

(865

)

(1,416

)

(24,509

)

$

235,359

The Company made net withdrawals out of the trusts of approximately $1.5 million during the nine months
ended September 30, 2011. During the nine months ended September 30, 2011, purchases and sales of securities available for sale included in trust investments were approximately $116.3 million and $111.1 million, respectively. Contributions
included $3.0 million of assets that were acquired through acquisitions during the nine months ended September 30, 2011.

Other-than-temporary Impairments of Trust Assets

During the nine months ended September 30, 2011, the Company determined that there was a single security with an aggregate cost basis of less than $0.1 million which was substantially impaired, and
such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change against the liability for perpetual care trust corpus. During the three months
ended September 30, 2011, the Company determined that there were no other than temporary impairments to the investment portfolio for perpetual care trusts.

During the three and nine months ended September 30, 2010, the Company determined that there were 3 securities, with an aggregate cost basis of approximately $25.6 million, an aggregate fair value of
approximately $10.8 million and a resulting impairment of approximately $14.8 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company has adjusted the cost basis of this asset to its current value and
offset this change against the liability for perpetual care trust corpus.

7.

DERIVATIVE INSTRUMENTS

On November 24, 2009, the Company entered into an interest rate swap (the First Interest Rate Swap)
wherein the Company agreed to pay the counterparty interest in the amount of three month LIBOR plus 888 basis points in consideration for the counterparties agreement to pay the Company a fixed rate of interest of 10.25% on a principal amount of
$108.0 million. On December 4, 2009, the Company entered into an interest rate swap (the Second Interest Rate Swap, together with the First Interest Rate Swap, the Interest Rate Swaps) wherein the Company agreed to pay
the counterparty interest in the amount of three month LIBOR plus 869 basis points in consideration for the counterparties agreement to pay the Company a fixed rate of interest of 10.25% on a principal amount of $27.0 million.

The Interest Rate Swaps did not qualify for hedge accounting. Accordingly, the fair value of the Interest Rate Swaps were reported on the
Companys balance sheet and periodic changes in the fair value of the Interest Rate Swaps were recorded in earnings. At September 30, 2010, the Company recorded an asset of approximately $2.0 million, which represents the fair value of the
Interest Rate Swaps. The Company recorded a gain on the fair value of interest rate swaps of approximately $1.4 million and $4.6 million during the three and nine months ended September 30, 2010, respectively. The Interest Rate Swaps were
terminated in October of 2010.

This note includes a summary of material terms of the Companys senior notes, senior secured notes,
credit facilities and other debt obligations. For a more detailed description of the Companys long-term debt agreements, see the Companys 2010 Form 10-K.

10.25% Senior Notes due 2017

Purchase Agreement

On November 18, 2009, the Company entered into a Purchase Agreement (the Purchase Agreement) by and among StoneMor
Operating LLC (the Operating Company), Cornerstone Family Services of West Virginia Subsidiary, Inc. (CFS West Virginia), Osiris Holding of Maryland Subsidiary, Inc. (Osiris), the Partnership, the subsidiary
guarantors named in the Purchase Agreement (together with the Company, the Note Guarantors) and Bank of America Securities LLC (BAS), acting on behalf of itself and as the representative for the other initial purchasers named
in the Purchase Agreement (collectively, the Initial Purchasers). Pursuant to the Purchase Agreement, the Operating Company, CFS West Virginia and Osiris (collectively, the Issuers), each the Companys wholly-owned
subsidiary, as joint and several obligors, agreed to sell to the Initial Purchasers $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the Senior Notes), with an original issue discount of approximately $4.0
million, in a private placement exempt from the registration requirements under the Securities Act, for resale by the Initial Purchasers (i) to qualified institutional buyers pursuant to Rule 144A under the Securities Act or (ii) outside
the United States to non-U.S. persons in compliance with Regulation S under the Securities Act (the Notes Offering). The Notes Offering closed on November 24, 2009.

Indenture

On November 24, 2009, the Issuers, the Company, and the
other Note Guarantors entered into an indenture (the Indenture), among the Issuers, the Company, the other Note Guarantors and Wilmington Trust FSB, as trustee (the Trustee) governing the Senior Notes.

The Issuers pay 10.25% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on
June 1 and December 1 of each year, starting on June 1, 2010. The Senior Notes mature on December 1, 2017.

The Indenture requires the Company, the Issuers and/or the Note Guarantors, as applicable, to comply with various covenants including,
but not limited to, covenants that, subject to certain exceptions, limit the Companys and its subsidiaries ability to (i) incur additional indebtedness; (ii) make certain dividends, distributions, redemptions or investments;
(iii) enter into certain transactions with affiliates; (iv) create, incur, assume or permit to exist certain liens against their assets; (v) make certain sales of their assets; and (vi) engage in certain mergers, consolidations
or sales of all or substantially all of their assets. The Indenture also contains various affirmative covenants regarding, among other things, delivery of certain reports filed with the SEC and materials required pursuant to Rule 144A under the
Securities Act to holders of the Senior Notes and joinder of future subsidiaries as Note Guarantors under the Indenture. The Company was in compliance with all financial covenants at September 30, 2011.

On August 15, 2007, the Company entered into, along with the General Partner and certain of the Companys subsidiaries (collectively, the Note Issuers), the Amended and Restated Note
Purchase Agreement (the NPA) with Prudential Investment Management Inc., The Prudential Insurance Company of America, Prudential Retirement Insurance and Annuity Company, certain affiliates of Prudential Investment Management Inc., iStar
Financial Inc., SFT I, Inc., and certain affiliates of iStar Financial Inc. (collectively, the Note Purchasers). The NPA was amended seven times prior to January 28, 2011 to amend borrowing levels, interest rates and covenants.
Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms in the NPA, as amended.

On January 28, 2011, and in connection with the Companys February 2011 follow on public offering of common units, the Company entered into the Eighth Amendment to the Amended and Restated
Credit Agreement. This amendment included the Lenders consent to the use of a portion of the proceeds from the public offering of common units to redeem in full the outstanding $17.5 million of 12.5% Series B and $17.5 million of 12.5% Series
C Senior Secured Notes due August 2012 and to pay an aggregate make-whole premium of $4.0 million related thereto, which represented the Companys final obligations outstanding under the NPA. The make-whole premium has been classified as early
extinguishment of debt on the unaudited condensed consolidated statement of operations.

Acquisition Credit Facility and Revolving Credit
Facility

On April 29, 2011, the Company entered into the Second Amended and Restated Credit Agreement (the
Credit Agreement) among the Operating Company as the Borrower, each of the subsidiaries of the Operating Company as additional Borrowers, the General Partner and the Company as Guarantors, the Lenders identified therein, and Bank of
America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. The terms of the Credit Agreement are substantially the same as the terms of the prior agreement which was entered into on August 15, 2007 and amended eight times prior
to entering into the Credit Agreement. The primary purpose of entering into the Credit Agreement was to consolidate the amendments to the prior agreement and to update outdated references. The current terms of the Credit Agreement are set forth
below. Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms in the Credit Agreement.

The Credit Agreement provides for both an acquisition credit facility (the Acquisition Credit Facility) of $65.0 million and a revolving credit facility (the Revolving Credit
Facility and, together with the Acquisition Credit Facility, the Credit Facility) of $55.0 million. At September 30, 2011, amounts outstanding under the Credit Facility bear interest at a rate of 5.75%. Amounts borrowed may be
either Base Rate Loans or Eurodollar Rate Loans and once repaid or prepaid, amounts under the Acquisition Credit Facility may not be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus
applicable margins ranging from 1.75% to 2.75% and 2.75% to 3.75%, respectively, depending on the Companys Consolidated Leverage Ratio. The Base Rate is the highest of the Prime Rate, the Federal Funds Rate plus 0.50%, or the Eurodollar Rate
plus 1.0%. The Eurodollar Rate is:



with respect to a Eurodollar Rate Loan, the higher of the British Bankers Association LIBOR Rate or 2.0%; and



with respect to a Base Rate Loan, the British Bankers Association LIBOR Rate.

The maturity date of the Credit Facility is January 29, 2016. The Companys maximum Consolidated Leverage Ratio, which is the
ratio of Consolidated Funded Indebtedness to Consolidated EBITDA, is 3.65 to 1.0 for all Measurement Periods ending after December 31, 2010. In addition, the Company will not be permitted to have Maintenance Capital Expenditures, as defined in
the Credit Agreement, for any Measurement Period ending in 2011, 2012 and 2013 exceeding $4.6 million, $5.2 million and $5.8 million, respectively, or $6.5 million for any Measurement Period ending in 2014 or thereafter. The Company will also not
permit Consolidated EBITDA for any Measurement Period to be less than the sum of (i) $52 million plus (ii) 80% of the aggregate of all Consolidated EBITDA for each Permitted Acquisition completed after February 9, 2011.

At the time of entering into the Credit Agreement, Consolidated Fixed Charge Coverage Ratio was required to be not less than 1.15x for
any Measurement Period ending in 2011, or 1.20x for any Measurement Period thereafter.

On August 4, 2011, the Company
entered into the First Amendment to the Credit Agreement (the First Amendment) to provide that the Company may not permit the Consolidated Fixed Charge Coverage Ratio to be less than 1.08x for any Measurement Period ending in the second
and third fiscal quarters of 2011, 1.15x for any Measurement Period ending in the fourth quarter of 2011, or 1.20x thereafter. This amendment was effective on a retroactive basis to June 30, 2011.

On October 28, 2011, the Company entered into the Second Amendment to the Credit Agreement (the Second Amendment) to
provide that the Company may not permit the Consolidated Fixed Charge Coverage Ratio to be less than 1.05x for any Measurement Period ending in the third and fourth fiscal quarters of 2011, or 1.20x thereafter. This amendment was effective on a
retroactive basis to August 31, 2011.

The Credit Agreement requires the Borrowers to pay an unused commitment fee, which is
calculated based on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments. The Commitment Fee Rate ranges from 0.5% to 0.75% depending on the Companys Consolidated Leverage Ratio.

The Credit Agreement contains restrictive covenants that, among other things, prohibit distributions upon defined events of default,
restrict investments and sales of assets and require the Company to maintain certain financial covenants, including specified financial ratios. A material decrease in revenues could cause the Company to breach certain of its financial covenants,
such as the Consolidated Leverage Ratio, Consolidated Fixed Charge Coverage Ratio and the Consolidated EBITDA covenant, under the Credit Agreement. Any such breach could allow the Lenders to accelerate (or create cross-default under) the
Companys debt which would have a material adverse effect on the Companys business, financial condition or results of operations. As of September 30, 2011 the Company was in compliance with all applicable financial covenants.

The proceeds of the Acquisition Credit Facility may be used by the Borrowers to finance (i) Permitted Acquisitions, and
(ii) the purchase and construction of mausoleums. The proceeds of the Revolving Credit Facility and Swing Line Loans may be utilized to finance working capital requirements, Capital Expenditures and for other general corporate purposes. The
Borrowers obligations under the Credit Agreement are guaranteed by both the Partnership and StoneMor GP LLC.

The
Borrowers obligations under the Credit Facility are secured by a first priority lien and security interest in substantially all of the Borrowers assets, whether then owned or thereafter acquired, excluding: (i) trust accounts,
certain proceeds required by law to be placed into such trust accounts and funds held in trust accounts; (ii) the General Partners interest in the Partnership, the incentive distribution rights under the Partnerships partnership
agreement and the deposit accounts of the General Partner into which distributions are received; (iii) Equipment subject to a purchase money security interest or equipment lease permitted under the Credit Agreement and certain other contract
rights under which contractual, legal or other restrictions on assignment would prohibit the creation of a security interest or such creation of a security interest would result in a default thereunder.

Events of Default under the Credit Agreement include, but are not limited to, the following:



non-payment of any principal, interest or other amounts due under the Credit Agreement or any other Credit Document;



failure to observe or perform any covenants related to: (i) the delivery of financial statements, compliance certificates, reports and other
information; (ii) providing prompt notice of Defaults and other events; (iii) the preservation of the legal existence and good standing of each Borrower and Guarantor; (iv) the ability of the Administrative Agent and each Lender to
visit and inspect properties, examine books and records, and discuss financial and business affairs with directors, officers and independent public accountants of each Borrower and Guarantor; (v) restrictions on the use of proceeds;
(vi) guarantees by new Subsidiaries; (vii) the maintenance of corporate formalities for each Borrower and Guarantor; (viii) the maintenance of Trust Accounts and Trust Funds; and (ix) any of the negative covenants contained in
the Credit Agreement;



failure to observe or perform any other covenant, if uncured 30 days after notice thereof is provided by the Administrative Agent or Lenders;



any default under any other Indebtedness of the Borrowers or Guarantors;



any insolvency proceedings by a Borrower or Guarantor;



the insolvency of any Borrower or Guarantor, or a writ of attachment or execution or similar process issuing or being levied against any material part
of the property of a Borrower or Guarantor; and

As of September 30, 2011, the Companys taxable corporate subsidiaries had a federal net operating loss
carryover of approximately $124.9 million, which will begin to expire in 2019 and $170.4 million in state net operating losses which begin to expire this year.

The Partnership is not a taxable entity for federal and state income tax purposes; rather, the Partnerships tax attributes (except those of its corporate subsidiaries) are to be included in the
individual tax returns of its partners. Neither the Partnerships financial reporting income, nor the cash distributions to unit-holders, can be used as a substitute for the detailed tax calculations that the Partnership must perform annually
for its partners. Net income from the Partnership is not treated as passive income for federal income tax purposes. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership
with passive losses from other sources.

The Partnerships corporate subsidiaries account for their income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis and operating loss and tax credit carry forwards.

Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.

The provision for income taxes for the three and nine months ended September 30, 2011
and 2010 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2011 and 2010, respectively. The Companys effective tax rate differs from its statutory tax rate primarily because the Companys
legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.

The Company is not currently under examination by any state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2007 forward. Management believes that
the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the opinion of the
Companys management that there are no pending assessments that will result in a material effect on the Companys unaudited condensed consolidated financial statements over the next twelve months.

The Company recognizes any interest accrued related to unrecognized tax benefits in interest expense and any penalties in operating
expenses. The Company has not recorded any material interest or penalties during the three and nine months ended September 30, 2011 or 2010. During the nine months ended September 30, 2011, the Company recorded an income tax benefit of
approximately $0.9 million related to the reversal of uncertain tax positions for which the statute of limitations had expired.

10.

DEFERRED CEMETERY REVENUES, NET

At September 30, 2011 and December 31, 2010, deferred cemetery revenues, net, consisted of the following:

As of

September 30,2011

December 31,2010

(in thousands)

Deferred cemetery revenue

$

294,464

$

266,754

Deferred merchandise trust revenue

46,089

28,999

Deferred merchandise trust unrealized gains (losses)

(22,202

)

11,307

Deferred pre-acquisition margin

122,914

117,309

Deferred cost of goods sold

(41,263

)

(37,904

)

Deferred cemetery revenues, net

$

400,002

$

386,465

Deferred selling and obtaining costs

$

65,819

$

59,422

Deferred selling and obtaining costs are carried as an asset on the unaudited condensed consolidated
balance sheet in accordance with the Financial Services  Insurance topic of the ASC.

11.

COMMITMENTS AND CONTINGENCIES

Legal

The Company is party to legal proceedings in the ordinary course of its business but does not expect the outcome of any proceedings, individually or in the aggregate, to have a material effect on the
Companys financial position, results of operations or liquidity.

At September 30, 2011, the Company was committed to operating lease payments for premises, automobiles and office equipment under various operating leases with initial terms ranging from one to five
years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $1.7 million for the three and nine months ended September 30, 2011, respectively, and $0.6 million and $1.6 million for the three and nine
months ended 2010, respectively.

At September 30, 2011, operating leases will result in future payments in the following
approximate amounts:

(in thousands)

2012

$

1,711

2013

1,505

2014

946

2015

681

2016

658

Thereafter

1,868

Total

$

7,369

12.

PARTNERS CAPITAL

Unit-Based Compensation

The Company has issued to certain key employees and management unit-based compensation in the form of unit appreciation rights and phantom partnership units.

Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three and nine months
ended September 30, 2011 and 2010 are summarized in the table below:

Three months endedSeptember 30,

Nine months endedSeptember 30,

2011

2010

2011

2010

(in thousands)

(in thousands)

Unit appreciation rights

$

119

$

121

$

358

$

364

Restricted phantom units

76

69

218

179

Total unit-based compensation expense

$

195

$

190

$

576

$

543

As of September 30, 2011, there was approximately $1.1 million in non-vested unit appreciation
rights outstanding. These unit appreciation rights will be expensed through the first quarter of 2013.

On February 9,
2011, the Company completed a follow on public offering of 3,756,155 common units, including an option to purchase up to 731,155 common units to cover over-allotments which was exercised in full by the underwriters, at a price of $29.25 per unit,
representing a 19.4% interest in the Company. Total gross proceeds from these transactions were approximately $109.9 million, before offering costs and underwriting discounts. Net proceeds of the offering, including the related capital contribution
of the General Partner, after deducting underwriting discounts and offering expenses, were approximately $105.6 million. As part of this transaction, selling unitholders also sold 1,849,366 common units. The Company did not receive any of the
proceeds generated by the sale of any units held by the selling unitholders.

On June 22, 2011, the Company issued 9,852
units in connection with an acquisition consummated in the second quarter of 2010. See Note 13.

On January 5, 2011, the Operating Company, StoneMor North Carolina LLC, a North Carolina limited liability company and StoneMor North Carolina Subsidiary LLC, a North Carolina limited liability
company, each a wholly-owned subsidiary of the Company (collectively the Buyer), entered into an Asset Purchase and Sale Agreement (the 1st Quarter Purchase Agreement) with Heritage Family Services, Inc., a North Carolina
corporation and an individual (collectively the Seller).

Pursuant to the 1st Quarter Purchase Agreement, the
Buyer acquired three cemeteries in North Carolina, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $1.7 million in cash.

The table below reflects the Companys preliminary assessment of the fair value of net assets acquired, the purchase price and the
resulting goodwill recorded in the first quarter of the year. These amounts will be retrospectively adjusted as additional information is received.

PreliminaryAssessment

(in thousands)

Assets:

Accounts receivable

$

97

Cemetery property

1,710

Merchandise trusts, restricted, at fair value

880

Perpetual care trusts, restricted, at fair value

344

Property and equipment

332

Other assets

100

Total assets

3,463

Liabilities:

Deferred margin

795

Merchandise liabilities

734

Perpetual care trust corpus

344

Total liabilities

1,873

Fair value of net assets acquired

1,590

Consideration paid

1,700

Goodwill from purchase

$

110

Second Quarter 2011 Acquisition

On June 22, 2011, the Operating Company, StoneMor Missouri LLC, a Missouri limited liability company and StoneMor Missouri Subsidiary LLC, a Missouri limited liability company, each a wholly-owned
subsidiary of the Company (collectively the Buyer), entered into an Asset Purchase and Sale Agreement (the 2nd Quarter Purchase Agreement) with SCI International, LLC, a Delaware limited liability company and Keystone
America, Inc., a Delaware corporation (collectively the Seller or SCI Missouri).

Pursuant to the 2nd
Quarter Purchase Agreement, the Buyer acquired three cemeteries and four funeral homes in Missouri, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller
$2.15 million in cash.

The table below reflects the Companys preliminary assessment of the fair value of net
assets acquired, the purchase price and the resulting goodwill recorded during the second quarter of the year. These amounts will be retrospectively adjusted as additional information is received.

PreliminaryAssessment

(in thousands)

Assets:

Accounts receivable

$

104

Cemetery property

880

Merchandise trusts, restricted, at fair value

2,622

Perpetual care trusts, restricted, at fair value

1,195

Property and equipment

1,783

Total assets

6,584

Liabilities:

Deferred margin

1,420

Merchandise liabilities

1,701

Perpetual care trust corpus

1,195

Deferred tax liability

400

Total liabilities

4,716

Fair value of net assets acquired

1,868

Consideration paid

2,150

Goodwill from purchase

$

282

Third Quarter 2011 Acquisitions

On August 1, 2011, the Operating Company and CFS West Virginia, an affiliate of the Operating Company, (collectively the Buyer) entered into a Stock Purchase Agreement with three
individuals (collectively the Seller) to purchase all of the stock of Prince George Cemetery Corporation, a Virginia corporation. Through the purchase of Prince George Cemetery Corporation, the Buyer acquired one cemetery in Virginia. In
consideration for the stock acquired, the Buyer paid the Seller approximately $1.9 million in cash. The Buyer will also pay $0.3 million in cash in even quarterly installments over a five year period in exchange for non-compete agreements with the
Seller.

The table below reflects the Companys preliminary assessment of the fair value of net assets acquired, the
purchase price and the resulting goodwill recorded in the third quarter of the year. These amounts will be retrospectively adjusted as additional information is received.

Also, on August 17, 2011, the Operating Company, StoneMor Puerto Rico LLC, a Puerto Rico limited
liability company and StoneMor Puerto Rico Subsidiary LLC, a Puerto Rico limited liability company, each a wholly-owned subsidiary of the Company (collectively the Buyer), entered into a Stock Purchase Agreement with Alderwoods Group,
LLC, a Delaware limited liability company (the Seller or SCI Puerto Rico) to purchase all of the stock of SCI Puerto Rico Funeral and Cemetery Services, Inc., a Puerto Rico corporation. Through the purchase of SCI Puerto Rico
Funeral and Cemetery Services, Inc., the Buyer acquired five cemeteries and four funeral homes in Puerto Rico. In consideration for the stock acquired, the Buyer paid the Seller $4.6 million in cash.

The table below reflects the Companys preliminary assessment of the fair value of net assets acquired, the purchase price and the
resulting goodwill recorded in the third quarter of the year. These amounts will be retrospectively adjusted as additional information is received.

In connection with the Purchase Agreement, on March 30, 2010, StoneMor LLC and Plymouth Warehouse
Facilities LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (Plymouth and individually and collectively with StoneMor LLC, Warehouse Buyer), entered into an Asset Purchase and Sale
Agreement (the Warehouse Purchase Agreement) with SCI, Hillcrest, Sunrise, Flint, Buyer NQ Sub and Buyer LLC.

Pursuant to the Purchase Agreement, Buyer acquired nine cemeteries in Michigan, including certain related assets (the Acquired
Assets), and assumed certain related liabilities (the Assumed Liabilities). In consideration for the transfer of the Acquired Assets and in addition to the assumption of the Assumed Liabilities, Buyer paid Seller approximately
$14.1 million (the Closing Purchase Price) in cash.

Pursuant to the Warehouse Purchase Agreement, Warehouse Buyer
acquired one warehouse in Michigan from SCI, including certain related assets, and assumed certain related liabilities for $0.5 million in cash, which was deemed part of the $14.1 million consideration paid in connection with the Purchase Agreement.

The Purchase Agreement and Warehouse Purchase Agreement also include various representations, warranties, covenants,
indemnification and other provisions which are customary for transactions of this nature.

In the fourth quarter of 2010, the Company obtained additional information regarding the
fair value of the net assets acquired in the Purchase Agreement. This change to the provisional purchase price allocation resulted in a recast of amounts originally reported on Form 10-Q for the first quarter of 2010. The table below reflects the
Companys final assessment of these fair values and all amounts have been retrospectively adjusted.

FinalAssessment

(in thousands)

Assets:

Cemetery property

$

33,761

Accounts receivable

2,651

Merchandise trusts, restricted, at fair value

48,027

Perpetual care trusts, restricted, at fair value

15,084

Property and equipment

5,768

Total assets

105,291

Liabilities:

Deferred margin

31,094

Merchandise liabilities

30,126

Deferred income tax liability, net

7,879

Perpetual care trust corpus

15,084

Total liabilities

84,183

Fair value of net assets acquired

21,108

Consideration paid

14,015

Gain on bargain purchase

$

7,093

Second Quarter 2010 Acquisition

On April 29, 2010, the Johnson County Circuit Court of Indiana entered the Order Approving Form of Amended and Restated Purchase Agreement and Authorizing Sale of Equity Interests and Assets (the
Indiana Order). The Indiana Order, subject to certain conditions, permitted Lynette Gray, as receiver (the Receiver) of the business and assets of Ansure Mortuaries of Indiana, LLC (Ansure), Memory Gardens
Management Corporation (MGMC), Forest Lawn Funeral Home Properties, LLC (Forest Lawn), Gardens of Memory Cemetery LLC (Gardens of Memory), Gill Funeral Home, LLC (Gill), Garden View Funeral Home, LLC
(Garden View), Royal Oak Memorial Gardens of Ohio Ltd. (Royal Oak), Heritage Hills Memory Gardens of Ohio Ltd. (Heritage) and Robert E. Nelms (Nelms and collectively with Ansure, MGMC, Forest Lawn,
Gardens of Memory, Gill, Garden View, Royal Oak and Heritage, the Original Sellers), to enter into and consummate an Amended and Restated Purchase Agreement (the 2nd Quarter Purchase Agreement) with StoneMor Operating LLC, a
Delaware limited liability company (StoneMor LLC), StoneMor Indiana LLC, an Indiana limited liability company (StoneMor Indiana), StoneMor Indiana Subsidiary LLC, an Indiana limited liability company (StoneMor
Subsidiary) and Ohio Cemetery Holdings, Inc., an Ohio nonprofit corporation (Ohio Nonprofit, and collectively with StoneMor LLC, StoneMor Indiana and StoneMor Subsidiary, the Buyer), each a wholly-owned subsidiary of
the Company. Subject to the receipt of the Indiana Order, the Purchase Agreement was executed by the Buyer and the Receiver on April 2, 2010.

Effective June 21, 2010, certain subsidiaries of the Company entered into Amendment
No. 1 to the 2nd Quarter Purchase Agreement (Amendment No. 1) by and among the Buyer, the Original Sellers, Robert Nelms, LLC (Nelms LLC, and collectively with the Original Sellers, the Sellers) and the
Receiver, which amended the Purchase Agreement executed by the Buyer and the Receiver. Amendment No. 1 amended the 2nd Quarter Purchase Agreement by: adding certain parties to the Purchase Agreement; modifying certain representations and
warranties made by the Original Sellers in the 2nd Quarter Purchase Agreement; and providing that the Buyer will assume certain additional liabilities such as the obligation to pay for all claims incurred under the health benefit plans of the
Original Sellers on or before the closing of the transactions contemplated by the Purchase Agreement and Amendment No. 1, but which had not been reported on or prior to the closing.

Effective June 21, 2010, pursuant to the 2nd Quarter Purchase Agreement and Amendment No. 1, the Buyer acquired the stock (the
Stock) of certain companies owned by Ansure (the Acquired Companies) and certain assets (the Assets) owned by Nelms, Nelms LLC, Gill, Gardens of Memory, Garden View, Forest Lawn, Heritage, Royal Oak and MGMC,
resulting in the acquisition of 8 cemeteries and 5 funeral homes in Indiana, Michigan and Ohio (the Acquisition). The Buyer acquired the Stock and Assets, advanced moneys to pay for trust shortfalls of the cemeteries, paid certain
liabilities of the Sellers, which were offset by funds held in a Smith Barney Account acquired by the Buyer in the transaction, and paid certain legal fees of the parties to the transaction and other acquisition costs, for a total consideration,
including the offset by the funds held in the Smith Barney Account, of approximately $32.5 million. The Acquisition was financed, in part, by borrowing $22.5 million from the Companys acquisition facility under the Amended and Restated Credit
Agreement dated August 15, 2007 among StoneMor LLC, certain of its subsidiaries, the Company, StoneMor GP LLC, Bank of America, N.A., the other lenders party thereto, and Banc of America Securities LLC, as amended.

Pursuant to the Settlement Agreement, StoneMor agreed to assume, pay and discharge a portion of Ansures and Forest Lawns obligations under: (i) certain notes issued by Ansure in favor of
Fred W. Meyer, Jr., J. Meyer, T. Meyer, and Cade (collectively, the Original Meyer Family); and (ii) a note issued by Forest Lawn to FTJ, which was later assigned to the Original Meyer Family.

StoneMor agreed to assume approximately $7.1 million of Ansures and Forest Lawns obligations under the notes they issued,
with the remaining principal, interest and fees due under such notes forgiven by the Meyer Family. In connection with the assumption of these obligations, at Closing, StoneMor issued promissory notes to each member of the Meyer Family (the
Closing Notes) and additional promissory notes payable in installments to certain members of the Meyer Family (the Installment Notes). The Closing Notes were issued effective June 21, 2010 in the aggregate principal
amount of approximately $5.8 million, were unsecured subordinated obligations of StoneMor, bore no interest and were payable on demand at the Closing. The Closing Notes were paid at closing by: (i) the issuance by the Company of 293,947
unregistered common units representing limited partnership interests of the Company (the Units) valued at approximately $5.6 million pursuant to the terms of the Settlement Agreement; and (ii) a cash payment of approximately $0.2
million.

The Installment Notes were issued effective June 21, 2010 and mature April 1, 2014. The Installment Notes
are to be paid over a 4 year period and do not have a stated rate of interest. The Company has recorded the Installment Notes at their fair market value of approximately $2.6 million. The face amounts of the Installment Notes were discounted
approximately $0.7 million, and the discount will be amortized to interest expense over the life of the Installment Notes. The Installment Notes bear 10.25% interest per annum on the portion of the outstanding balance after the maturity date or
while there exists any uncured event of default or the exercise by the Company of any remedies following the occurrence and during the continuance of any event of default. In addition, if StoneMor voluntarily files for bankruptcy or is involved in
an involuntary bankruptcy proceeding, the entire principal balance of the Installment Notes will automatically become due and payable.

J. Meyer, T. Meyer and Cade each entered into an Amended and Restated Agreement-Not-To-Compete with StoneMor, which amended the non-compete agreements each previously entered into with Ansure. In
consideration for entering into an Amended and Restated Agreement-Not-To-Compete, StoneMor agreed to pay an aggregate of approximately $2.3 million to J. Meyer, T. Meyer, and Cade, with approximately $0.3 million paid at Closing, and the remainder
to be paid in installments over 4 years.

The Settlement Agreement also provides that, if the annual distributions paid by the Company
to its unitholders are less than $2.20, StoneMor will pay additional cash consideration to the Meyer Family annually for four years pursuant to a formula contained in the Settlement Agreement. StoneMor may also pay up to approximately $2.4 million
to the Meyer Family from the proceeds of the Misappropriation Claims, subject to certain minimum thresholds before payments are required.

In addition, StoneMor provided an assignment from the Receiver to the Meyer Family of the Eminent Domain Claim, as defined in the Settlement Agreement, and the proceeds thereto, at closing. The Meyer
Family agreed to assign its rights under the Fraud Claims, as defined in the Settlement Agreement, to StoneMor.

All
obligations of StoneMor, the Company, and the Acquired Companies under the Settlement Agreement and other transaction documents are subordinate and junior to the obligations of StoneMor, the Company, and the Acquired Companies under any Senior Debt,
as defined in the Settlement Agreement.

The Settlement Agreement also includes various representations, warranties,
covenants, mutual releases, indemnification and other provisions, which are customary for a transaction of this nature.

Unregistered Sale
of Securities

In connection with the Acquisition, StoneMor GP LLC, the general partner of the Company (StoneMor
GP), entered into a Non-Competition Agreement (Non-Competition Agreement) dated as of June 21, 2010 with Ronald P. Robertson, pursuant to which Mr. Robertson agreed not to compete with StoneMor GP and the companies under
its management and control. In consideration for Mr. Robertsons covenant not to compete and as a partial payment of the Closing Notes to the Meyer Family pursuant to the Settlement Agreement, effective June 21, 2010, the Company
issued 303,800 Units.

Pursuant to the Non-Competition Agreement, the Company is obligated to issue additional Units which
were initially valued at a fair value of $0.5 million based on a unit price of $20.30 just prior to the date of acquisition. As a result, the Company issued 9,852 units in June of 2011, resulting in a charge to partners capital of
approximately $0.3 million. The Company is also obligated to issue an additional 9,852 units and 4,926 units in June of 2012 and June of 2013, respectively.

The table below reflects the Companys final assessment of the fair value of net assets received, the purchase price and the resulting goodwill from the purchase and displays the adjustment made from
the adjusted values reported at December 31, 2010. The Company obtained additional information in the second quarter of 2011 and has retrospectively adjusted these preliminary values as noted below.

If the acquisitions from the first and second quarters of 2010 had been consummated on January 1,
2010, on a pro forma basis, for the three and nine months ended September 30, 2010, consolidated revenues would have been $55.1 million and $149.0 million, respectively, consolidated net income (loss) would have been $(2.1) million and $1.7
million, respectively and net income (loss) per limited partner unit (basic and diluted) would have been $(0.15) and $0.12, respectively.

Third Quarter 2010 Acquisition and Long-Term Operating Agreement

During the third quarter of 2010, certain subsidiaries of the Company entered into a long-term operating agreement (the Operating Agreement) with the Archdiocese of Detroit (the
Archdiocese) wherein the Company became the exclusive operator of certain cemeteries owned by the Archdiocese.

Key terms and
conditions of the operating agreement include, but are not limited to, the following:

1.

There was no consideration paid by either party to effect the execution of the Operating Agreement.

2.

The Archdiocese will pay the Company a management fee in the amounts of $0.5 million, $0.4 million and $0.3 million during the first three years of the agreement. This
fee is in addition to any revenues the Company will earn from operating the property. No monies will be transferred during Year 4. The Company will pay the Archdiocese a fee in an amount equal to 5% of revenues beginning in Year 5. Total amounts
paid are capped at $0.3 million, $0.4 million and $0.5 million during years five through seven consecutively.

3.

The operating agreement is for a term of 40 years (subject to certain termination rights).

4.

The Company shall acquire the exclusive rights to all of the property and assets of each cemetery, including but not limited to, the use of all land for interment
purposes; the sum of accounts receivable and merchandise trust funds in force for existing pre-need contracts.

The Company has concluded that this Operating Agreement does not qualify as a variable
interest entity because the Company does not control the entity. However, the existing merchandise trust, which had a fair value of approximately $3.5 million as of the contract date, has been consolidated as a variable interest entity as the
Company controls and directly benefits from the operations of the merchandise trust. Other liabilities assumed by the Company have also been recorded as of the contract date. As no consideration was paid in this transaction, the Company has recorded
a deferred gain of approximately $3.1 million within deferred cemetery revenues, net, which represent the excess of the value of the merchandise trust over the liabilities assumed. This amount will be amortized as the Company recognizes the benefits
of ownership associated with the merchandise trust.

The table below reflects the amounts recorded on the contract date either
through consolidation as a VIE or the assumption of a liability, resulting in a deferred gain.

FinalAssessment

(in thousands)

Assets:

Merchandise trusts, restricted, at fair value

$

3,493

Liabilities:

Deferred margin

208

Merchandise liabilities

192

Net assets recorded

3,093

Consideration paid



Deferred gain

$

3,093

Also during the third quarter of 2010, the Company purchased a single cemetery for $1.5 million, which
included the payoff of an existing mortgage of $0.3 million. At September 30, 2010, the Company had made a provisional assessment of the fair value of net assets acquired for this transaction. The Company obtained additional information in the
fourth quarter of 2010 and had retrospectively adjusted these preliminary values as of December 31, 2010.

The table
below reflects the Companys final assessment of the fair value of net assets received, the purchase price and the resulting gain on a bargain purchase and displays the adjustment made from the adjusted values reported at December 31,
2010. The Company obtained additional information in the second quarter of 2011 and has retrospectively adjusted these preliminary values as noted below.

The results of operations related to this acquisition are not material to the financial statements taken
as a whole.

The accounting for an acquisition made in the fourth quarter of 2010 has still not been finalized and is subject
to further adjustment during 2011. During the second quarter of 2011, the Company obtained additional information related to the acquisition made in the fourth quarter of 2010. These adjustments resulted in changes to amounts reported on the balance
sheet at December 31, 2010 as follows; an increase to goodwill of $0.1 million and a decrease to long-term accounts receivable of $0.1 million.

14.

SEGMENT INFORMATION

The Company is organized into five distinct reportable segments which are classified as Cemetery Operations 
Southeast, Cemetery Operations  Northeast, Cemetery Operations  West, Funeral Homes, and Corporate.

The Company
has chosen this level of organization of reportable segments due to the fact that a) each reportable segment has unique characteristics that set it apart from other segments; b) the Company has organized its management personnel at these operational
levels; and c) it is the level at which the Companys chief decision makers and other senior management evaluate performance.

The cemetery operations segments sell interment rights, caskets, burial vaults, cremation niches, markers and other cemetery related merchandise. The nature of the Companys customers differs in each
of our regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be somewhere between the two. Statistics indicate that
customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct regional segments is primarily due to these
differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.

The Companys Funeral Homes segment offers a range of funeral-related services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for
visitation. These services are distinctly different than the cemetery merchandise and services sold and provided by the cemetery operations segments.

The Companys Corporate segment includes various home office selling and administrative expenses that are not allocable to the other operating segments.

Results of individual business units are presented based on our management accounting practices and
management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business
units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as
management accounting practices are enhanced and businesses change. Revenues and associated expenses are not deferred in accordance with SAB No. 104 therefore, the deferral of these revenues and expenses is provided in the adjustment column to
reconcile the Companys managerial financial statements to those prepared in accordance with GAAP. Pre-need sales revenues included within the sales category consist primarily of the sale of burial lots, burial vaults, mausoleum crypts, grave
markers and memorials, and caskets. Management accounting practices included in the Southeast, Northeast, and Western Regions reflect these pre-need sales when contracts are signed by the customer and accepted by the Company. Pre-need sales
reflected in the unaudited condensed consolidated financial statements, prepared in accordance with GAAP, recognize revenues for the sale of burial lots and mausoleum crypts when the product is constructed and at least 10% of the sales price is
collected. With respect to the other products, the unaudited condensed consolidated financial statements prepared under GAAP recognize sales revenues when the criteria for delivery under SAB No. 104 are met. These criteria include, among other
things, purchase of the product, delivery and installation of the product in the ground, and transfer of title to the customer. In each case, costs are accrued in connection with the recognition of revenues; therefore, the unaudited condensed
consolidated financial statements reflect Deferred Cemetery Revenue, Net and Deferred Selling and Obtaining Costs on the balance sheet, whereas the Companys management accounting practices exclude these items.

15.

FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosures topic of the ASC defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable
inputs. The three levels of the fair value hierarchy defined by this topic are described below.

Level 1: Quoted market prices available in active markets for identical assets or
liabilities. The Company includes short-term investments, consisting primarily of money market funds, U.S. Government debt securities and publicly traded equity securities and mutual funds in its level 1 investments.

Level 2: Quoted prices in active markets for similar assets; quoted prices in non-active markets for identical or similar assets; inputs
other than quoted prices that are observable. The Company includes U.S. state and municipal, corporate and other fixed income debt securities in its level 2 investments.

Level 3: Any and all pricing inputs that are generally unobservable and not corroborated by market data.

The following table allocates the Companys assets and liabilities measured at fair value as of September 30, 2011 and December 31, 2010.